Wednesday, January 27, 2010

When does it end. In a previous post at debthelp.tv I wrote about America's Servicing Company aka Wells Fargo's home retention representative refusing to let a homeowner pre-qualify for a federal government approved modification program. This time, a homeowner was "unlogged"

Recently, I was asked to assist a friend with a Countrywide/Bank of America home loan modification. With my assistance, Mike (name changed for security) was approved for a 3 month pre-trial home loan modification under the Making Homes Affordable aka Home Affordable Modification Plan aka HAMP. The HAMP program let’s homeowners enter into a temporary 3 month lower payment trial period. During the trial period the homeowner sends the lender the required financial documentation in order to get a permanent modification. The application and approval for the 3 month lower payment trial period is given within minutes after a homeowner provides the lender with his or her income and expense info over the phone.

In the middle of January, Mike was approved by Melody, a home retention representative(name changed, however we have her extension and id number). After Mike provided his income and expenses, Melody said he was approved for a monthly trial payment of $2340.50. Mike's original mortgage payment was $3300. Melody explained to Mike that he would receive the HAMP pre-trial package by Fed Ex. The package would contain his approval letter for the pre-trial period and the instructions for submission of the required documentation for a permanent loan modification.

After almost two weeks, Mike decided to call Countrywide/Bank of America's home retention department. Mike never received the HAMP pre-trial package as promised by Melody. Mike spoke with a home retention representative who was obviously based in another country. The rep said that there was no record of Mike's HAMP 3 month trial payment approval. We asked to be transferred to another department. The rep transferred us to another rep from the home retention department. This new rep also said there is no record of Mike's pre-trial approval for HAMP. We gave the rep Melody's information including her extension and id number. We asked this rep to contact Melody to confirm. The rep insisted that there was no information to provide, since there is no record of his conversation with Melody. So I advised Mike to hang up and call back. We called the home retention department number on Bank of America's website. The phone was answered by a nice young lady. We asked if she worked in the home retention department. She said "No, I am a concierge". HUH!?! We both laughed and Mike said "I don't need (no stinkin')concierge, I need a home retention rep." She was a little offended because it was clear Mike was impatient. So she connected us to the home retention department.

Mike spoke with another home retention rep and once again he explained the same story about his approval for the HAMP 3 month trial program by Melody. This time we started to get some answers. The rep said hold on for a minute. She returned to the line and said "I found the details of your conversation with Melody, it looks like that your conversation with Melody was UNLOGGED."

OK...Now let's wait a minute. Unlogged? There can only be one definition of "unlogged" when a lender's home retention rep uses it. This rep unknowingly admitted that Mike's conversation with Melody was taken off the system, so presumably no one would know he had the conversation and thus no immediate record of his approval. Any other homeowner going through this would have given up on the first try. Not I. If there is one rule one must follow when it comes to dealing with a lender, it is "Not all representatives are trained the same, therefore you must speak to more than one representative to make sure you get what you ask for".

This is when I took over and asked the rep to get a supervisor to speak with Mike. Leslie, "the supervisor" picked up the line. This was her story. Apparently, Melody entered Mike's information "manually" because there was an error in the system. Melody made a "manual" referral of Mike's information for a loan modification. Mike was in a "semi-delinquency" status because he was only 2 months behind. Mike should not have been approved for a 3 month pre-trial program until he was reviewed by another department. They had Mike's income and expense information which would be reviewed in the meantime. When Mike asked Leslie about the lower payments ($2340.50) that Melody approved him for, Leslie said "Well you should pay something because we sent a letter of intent to foreclose". She then said "I am not saying he was denied the 3 month trial program, it just that we need to send him the package". When asked about how long it will take to get the package, Leslie said "at least 45 days, you've got to understand we have so many people applying for a modification."

Then came the moment of truth: Mike asked Leslie "Why was my conversation with Melody 'Unlogged'? What does that mean?". Leslie paused, then said "Well the conversation with Melody was not put into the 'notes', because Melody must have forgotten to do it." Then the obvious question was "Well, how did you now Melody talked with Mike". Leslie said "We have a separate report log that is more detailed...and like, this has all the details, like when Mike made a payment, but it wasn't in the notes".

Blah Blah Blah...

There are a few rules one must follow when it comes to asking a lender for a modification:

First, "Lenders pass the buck to the front line of overworked, overwhelmed, underpaid, poorly trained, international and national representatives who are not prepared for the homeowner assault"

Second, "None of it will ever makes sense, just focus on the prize and get a letter agreeing to a modification"

Third, "Ask questions, after questions, and take notes after notes. A diary is essential"

Fourth, "A supervisor is normally another representative sitting next to another rep in an adjacent cubicle...or whoever is not on the phone and available."

Fifth, "Fight hard, be patient, don't give up and make sure you're not UNLOGGED"

Sunday, January 24, 2010

What is a personal debt obligation?A personal debt obligation is an amount of money legally owed to a lender that arises from a loan agreement. It involves a continuing obligation to make payments until the debt is paid off in full. A lender has the right to sue in order to collect any unpaid outstanding debt. A debt obligation can be secured or unsecured. A secured debt obligation involves the placement of a lien against the debtors’ property, so a lender can force the sale of the property to pay off the debt. An unsecured debt obligation has no security against the debtor’s property which means a lender can only sue a debtor personally to recover any monies due.

What is debt forgiveness?Debt forgiveness is the partial or total forgiveness of a debt. It means you no longer owe the debt to the lender or any other party. The lender gives up its’ rights to collect the debt and instead “writes it off” their books. Once a lender agrees to forgive a debt, the lender will report the forgiveness to the IRS by filing a 1099.

What is a deficiency debt?Deficiency debt (aka deficiency) arises when collateral that is used to secure a loan cannot satisfy the total amount due on the loan. It happens most often with debt involving real estate however it can occur in other types of collateralized loans such as car, business, and equipment loans. When a loan goes unpaid, the lender has the right to auction off the property to pay off the debt. If the lender collects less than what is owed at the sale, the shortage is called debt deficiency.

What are the consequences of a personal debt obligation?You will continue to owe the original amount that was borrowed plus any additional interest, late fees, collections fees, penalties, and/or attorney fees that may come due. If the debt obligation remains unpaid, then the lender can go to court, sue for a money judgment, get a money judgment, and use any legally available collection tactic. Most often, after a money judgment is awarded, a lender will attempt to put a lien on a bank account or garnish wages or put a lien on the debtor’s real estate. A lender can put a lien on business equipment. A debt obligation that turns into a money judgment can last for many years. In New York, a money judgment last for 20 years.

What are the consequences of debt forgiveness or debt deficiency?Whether it is debt forgiveness or debt deficiency, the consequences are essentially the same. A lender has several choices regarding any unpaid debt. The lender can forgive the debt or the lender can get a court ordered money judgment to chase the borrower for the money or the lender can sell the debt to a third party.If a lender agrees to forgive the debt, the lender will, in all likelihood, file a 1099. You should also check your state taxing authority, since your state may consider debt forgiveness as taxable income.

If the lender refuses to forgive the unpaid portion of a debt, then the lender will try to collect on the remaining balance. The lender can hire an attorney to sue for the remaining debt or sell the debt to a third-party. If successful, a lender will get a money judgment. There are various methods a lender can use to enforce collection of a money judgment. They can request your financial records to see if you have a job; to determine if you possess cash in the bank; or to locate your property. If the lender can find anything you own or earn, it will be seized or attached. The lender has the right to collect a fixed percentage of your wages aka wage garnishment. By the way, the lender does not need you permission to garnish your wages. The lender simply contacts the payroll department and demands that a portion of your salary go to the lender.

When there is a debt deficiency from the sale of a property, the lender can forgive the difference or try to collect the difference. A deficiency debt becomes a new personal debt obligation unless a lender forgives the deficiency. Sometime, a lender will demand a property owner sign another loan agreement for a deficiency debt. The IRS and some states offer tax relief to homeowners who have their debt deficiency forgiven. There is more information provided ahead about tax relief in this FAQ.

In our day and age, debt collection is big business. Technology makes it easier to find anyone and makes it easier to find everything an individual earns or owns. There are third party companies purchasing personal debt obligations and/or deficiency debt from lenders. These third party companies may pay 10 to 20 cents on the dollar for the debt. Once the third party company owns your remaining debt, under most circumstances the third party has the same collection rights as the original lender.

Why does a lender issue a 1099 after debt forgiveness?Debt forgiveness is considered taxable income by the IRS and by certain state and municipal taxing authorities. The IRS requires a lender to report the forgiven debt on form 1099-C, Cancellation of Debt. Individuals are required to report any forgiven debt on Form 1040. For example, let’s say Mr. Jones originally borrowed $250,000 from the lender. The lender decides to forgive $150,000. Basically telling the debtor he or she does not have to pay $150,000. The IRS believes that since you did not have to pay back the entire loan, then you ended up keeping the money, therefore it is income.

What if I own a property with a value less than the mortgage balance, can the difference be forgiven through a short sale or a foreclosure auction? Can the difference become a deficiency debt? Will the IRS let me exclude forgiven debt and not look at it as income?

The general answer is yes to all of the questions. If a lender agrees to a short sale, the uncollected difference can be forgiven or it can become a personal debt obligation. If the lender forgives the difference then the amount forgiven can be considered taxable income. If the lender refuses to forgive the difference, then it becomes a personal debt obligation. This means a lender or a third party (who buys the debt obligation from the lender) has the right to legally pursue you by getting a court ordered money judgment.

If your home ends up selling at a foreclosure auction for less than what is owed, the uncollected balance is called a deficiency dent. A deficiency from a foreclosure action can be forgiven or can become a personal debt obligation. Various states have anti-deficiency statutes. These statutes prevent a lender from collecting on a deficiency. Also, the federal government enacted the Mortgage Debt Relief Act of 2007. The Mortgage Debt Relief Act of 2007 allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for the relief. The act applies to all applicable debt forgiven between 2007 and 201. It applies up to $2 million for joint filing and $1 million if filing separately. Make sure you read the act and get a qualified professional to analyze your specific situation.

The IRS has additional exceptions to the “debt forgiveness is income” rule. The most common situations when cancellation of debt income is not taxable involve qualified principal residence indebtedness, bankruptcy, insolvency, certain farm debts,non-recourse loans and other exception established by the IRS. You need to speak with a qualified accountant or other professional, so you understand your tax obligations.

What are anti-deficiency laws?Simply put, an anti-deficiency law prevents a lender from collecting on a deficiency debt or places limits on how much a lender can collect on a deficiency debt. A homeowner will not be held responsible for any deficiency if the property is occupied by homeowner. Basically, the property must be the homeowner’s primary residence. The lender can only recover the property and any proceeds from a foreclosure auction sale.

Anti-deficiency laws do not prevent a lender from reporting the deficiency to the IRS. Since the lender is generally prevented from collecting the loss on a sale, the lender can report the loss to the IRS as forgiven debt.

You can contact your states attorney general or banking department to learn about any deficiency laws. You can contact a qualified attorney. There are certain states that limit a lender to only one lawsuit to collect a mortgage loan debt. So makes sure you get a professional opinion about your state laws.

What happens If I Settle A Credit Card or Business Loan For Less Than What’s Owed?If negotiated properly a credit card company or lender may agree to settle a business loan or credit card debt. Normally, the unpaid balance should be forgiven. This brings up an important principle. In order to get debt forgiveness, it must be in writing!!. Keep this in mind. Just because the lender verbally tells you the debt is forgiven does not mean it is forgiven unless it is in writing. There are instances when a debtor is told the debt is forgiven only to get aggressive collection calls sometime in the future.

How can I determine what is best for me?Ask yourself “What am I trying to achieve, what are my goals?” Your answer should focus on what puts you in the best financial position in the short and long term. The focus should be on reducing your debt obligation with limited long term negative financial impact. If debt is forgiven, then you may have a tax bill. If the debt becomes a money judgment, then wages can be garnished or certain assets can be seized. You will need a qualified team of professional advisors to assist you or you need to do a fair amount of research. Your advisors can include an accountant, attorney, and/or a consultant.

Each person’s circumstance is unique. It requires spending time listening, gathering detailed financial information, reviewing all necessary documents and discussing various strategies.

Monday, January 11, 2010

People all over are looking for ways to survive during this economic crunch. What can property owners do if they can't sell their house? They can rent out the house or rooms in the house. Often these homeowner, now accidental landlords, end up moving into a cheap apartment while there home is rented.

Time magazine has a good introductory article on this phenomenon. The author notes that this can save homeowners' in a cash crunch.

Even though being a landlord is not an easy path, in times like this it can make perfect sense.

Our future posts will talk more about Accidental Landlords and give tips for the best strategies.